Feeling Nervous? - March 20, 2012

[Billy]

After a strong initial rise in PM Money flow until 11:45 am, large players reversed their plan and MF kept weakening until the close with GDX price making new YTD lows. If this is good news for EOD GDX robot traders who are still short and can trail their stop lower to 52.57, RT traders who are already long have some reason to worry. Maybe the quick intraday visit below the -1.45% oversold level on March 14 was too shallow to confirm a final capitulation.

It is impossible to know yet how it will evolve, but I feel nervous with my leveraged long position and a good lesson for me is to consider smaller position sizes for RT trades when they are out of sync with the EOD robot. I should have listened to Dave who warned about this in another thread! With an unleveraged position, I wouldn’t worry much waiting for an average of 2 more days before potentially exiting with a loss if the -1.45% OS threshold is revisited. But I can’t run the risk of letting my 3x leveraged NUGT compounding losses at the speed of light and will respect my initial “comfort level” stop below GDX 49.42.

From the multi-pivot perspective, the next capitulation target in case of a new selloff is Monthly S3 (47.50) and there is only the very weak Weekly S1 (48.66) to act as a speed bumper in-between. On the other hand, if yesterday’s lows are just a shakeout from the consolidation preceding a fast and furious advance to the upside, I expect Monthly S1 (52.75) to be the most logical upside target.
There is still no advised position in IWM.
Billy

[davidallison@gmail.com]

Hi Billy,
I'm with you in that I have NUGT as well. With the gap down, I don't think I will sell right at open but rather watch money flow and price. If price improves along with money flow, I'll stay with the trade. Of concern is the price of gold which might soften this week. Interesting comments from Jim Wyckoff at kitco http://www.kitco.com/kitconewsvideo/
Dave

[sesorensen]

It is impossible to know yet how it will evolve, but I feel nervous with my leveraged long position and a good lesson for me is to consider smaller position sizes for RT trades when they are out of sync with the EOD robot. I should have listened to Dave who warned about this in another thread! With an unleveraged position, I wouldn’t worry much waiting for an average of 2 more days before potentially exiting with a loss if the -1.45% OS threshold is revisited. But I can’t run the risk of letting my 3x leveraged NUGT compounding losses at the speed of light and will respect my initial “comfort level” stop below GDX 49.42.
Billy

Attachment 13478
Attachment 13479

Hi Billy, Also being in NUGT I would be happy to hear you trading "solution" right now... well below your comfort level: you stop the trade here, you hedge (and if so how?), or like Dave stay in...... thx. sorensen

[Billy]

Hi Billy, Also being in NUGT I would be happy to hear you trading "solution" right now... well below your comfort level: you stop the trade here, you hedge (and if so how?), or like Dave stay in...... thx. sorensen

My stop at 16.30 on NUGT was executed at the open at 15.85. for a 7.31% loss.
A stop is a stop is a stop. Period. The gap doesn’t change anything to my decision, quite the contrary; the priority is avoiding the damage that can be done by compounding losses with a large position in a 3xleveraged instrument.
My trading solution is to stay in cash until either the -1.45% OS level or the MF average are crossed. At the OS level, the RT will be in cash and the EOD model might be long if OS at the close. Then I will go long on an unleveraged position. At the MF average, both models will be long and I will go fully leverged again.
Billy

[sesorensen]

My stop at 16.30 on NUGT was executed at the open at 15.85. for a 7.31% loss.
A stop is a stop is a stop. Period. The gap doesn’t change anything to my decision, quite the contrary; the priority is avoiding the damage that can be done by compounding losses with a large position in a 3xleveraged instrument.
My trading solution is to stay in cash until either the -1.45% OS level or the MF average are crossed. At the OS level, the RT will be in cash and the EOD model might be long if OS at the close. Then I will go long on an unleveraged position. At the MF average, both models will be long and I will go fully leverged again.
Billy

Thanks for revealing your trading tactics for today and strategy mid-term. I’m still in NUGT based on current positive divergence of RT MF and price. As it looks now today’s candlestick may end as a white body hammer (highly bullish)….. wouldn't such an indicator have any decision making influence on your trading, particularly after so many continuous down days? thanks again, sorensen

[Billy]

Thanks for revealing your trading tactics for today and strategy mid-term. I’m still in NUGT based on current positive divergence of RT MF and price. As it looks now today’s candlestick may end as a white body hammer (highly bullish)….. wouldn't such an indicator have any decision making influence on your trading, particularly after so many continuous down days? thanks again, sorensen

Let’s see first how the candle ends. I believe that a daily close below December 29th low of 49.22 would at least negate any hammer bullishness.
The March downtrend gapped and leapt from monthly floor level to monthly floor level. The February 29th top was at March MR1 (58.00), the first consolidation was at MPP (55.34), two successive down gaps led to a consolidation at MS1 (52.75), last week’s gap led us down to MS2 (50.09). So I see a clear risk that the current gap might lead to MS3 (47.50). There we would have a 95% probability that the March low is made and the MF would probably hit the OS level again. If GDX avoids MS3 and reverses back up from here on strong MF, the MF will be quick to reach the declining MF average (now at -0.24%) triggering a confirmed buy signal both for the EOD and RT models. I think that will be the next smart spot to reenter for reconciling oneself with the mechanical systems’ risk-reward logic.
Billy

[DJones]

I wasn't stopped out at the open.

Looking at the 5 day chart on the RT, the divergence between MF and price you spoke of yesterday is still quite clear. Looking at the MF from the low to now, money has moved in and the price has dropped. Even looking only from the EOD signal (above the -1.45%), money has clearly moved in and the price has dropped.

To me, this is a real test not of the algorithm or even RT vs. EOD, but indeed of the more fundamental issues: is MF relevant to price? I believe it is indeed relevant.

I'll watch the MF carefully today, but for now I'm staying long with a stop.

[Billy]

I wasn't stopped out at the open.

Looking at the 5 day chart on the RT, the divergence between MF and price you spoke of yesterday is still quite clear. Looking at the MF from the low to now, money has moved in and the price has dropped. Even looking only from the EOD signal (above the -1.45%), money has clearly moved in and the price has dropped.

To me, this is a real test not of the algorithm or even RT vs. EOD, but indeed of the more fundamental issues: is MF relevant to price? I believe it is indeed relevant.

I'll watch the MF carefully today, but for now I'm staying long with a stop.

Frankly, with an unleveraged position either in the EOD or the RT model, there is no need to deviate from each model’s rules and protections.
The whole issue is how to manage the risk of leverage, not the risk of a normal position.
Billy

[DJones]

Frankly, with an unleveraged position either in the EOD or the RT model, there is no need to deviate from each model’s rules and protections.
The whole issue is how to manage the risk of leverage, not the risk of a normal position.
Billy

Understood. I'm in NUGT as well. I just set my stop at 10% down, so it wasn't hit.

The issue for me is confidence in the MF we're watching. Obviously confidence in the face of a clear breakdown is just being stubborn (my wife mentions that from time to time). But I have been served well watching the MF and trading when it diverged from price, as the GDX has over the past 5 days.

I move my stops based on my confidence in the trade. For example I was ready to close the previous short long before I did, but instead I just kept moving the stops closer and closer to the price. For this trade, I've done the opposite and may indeed have moved it too far down, but am doing so looking at that clear divergence of MF and price you spoke of yesterday.

By the way, thanks for this thread.

[Pascal]

I wasn't stopped out at the open.

Looking at the 5 day chart on the RT, the divergence between MF and price you spoke of yesterday is still quite clear. Looking at the MF from the low to now, money has moved in and the price has dropped. Even looking only from the EOD signal (above the -1.45%), money has clearly moved in and the price has dropped.

To me, this is a real test not of the algorithm or even RT vs. EOD, but indeed of the more fundamental issues: is MF relevant to price? I believe it is indeed relevant.

I'll watch the MF carefully today, but for now I'm staying long with a stop.

I am also keeping the long position here, but I do not have leverage. Losing less than 2% on a trade - that is still open - after earning about 9% on the previous one is totally acceptable. The GDX MF does not show a strong selling push here (even accumulation.) So, because the un-leveraged position offers the freedom of patience, I'll be patient.


Pascal